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East: Will The 'Single Economic Space' Merely Isolate Its Members From The World Economy?

  • Mark Baker --> Kuchma: Our goal is a full-scale, free-trade zone One of the strongest criticisms leveled at efforts by Russia, Ukraine, Belarus, and Kazakhstan to more closely integrate their economies is that this will only separate them further from the world economy. Critics -- particularly in Ukraine -- decry what they see as mainly a Russia-led effort to exert control. They say Ukraine's greater economic goals -- such as joining the World Trade Organization -- could even be imperiled.

Prague, 26 May 2004 (RFE/RL) --- Critics of the plan by Russia, Ukraine, Belarus, and Kazakhstan to closely integrate their economies say this will only further isolate these countries from the global economy.

Leaders of the four this week took a big step in forming a "Single Economic Space" among them. At a meeting at the Ukrainian resort of Yalta, they agreed to accelerate efforts to formulate a regulatory and legal basis for integrating their economies by as soon as 2007.

Proponents of the Single Economic Space say it will spur economic growth by building on cultural, commercial, and transportation links established when the four countries were part of the Soviet Union. These links were splintered in the years following the Soviet Union's dissolution.

The meeting's host, Ukrainian President Leonid Kuchma, was especially upbeat.

"The line has been drawn under the organizational stage in the formation of the Single Economic Space. It is now time to move from grand plans to their real implementation and to achieving concrete, tangible results. Our position, as you know, remains unchanged: Our goal is to complete the formation of a full-scale free-trade zone without restrictions and limitations," Kuchma said.

But Kuchma's enthusiasm is not shared by everyone. Many in Ukraine, for example, say they fear closer economic integration with a richer and more powerful Russia risks weakening their country's independence. They say it will pull them further from Western institutions like the European Union and NATO. Kuchma's political opponents have threatened to withdraw from the agreement after presidential elections later this year.

One of the most potentially powerful arguments the critics offer is that membership in the Single Economic Space could hurt a country's chances of joining the World Trade Organization, the world's most important trade group. All four countries for years have been seeking entry into the WTO, so far without success -- although Russia took a major step forward when it last week secured EU backing for its membership bid.

But it's not clear that this argument is valid. Could membership in a regional economic group like the Single Economic Space prevent a country from joining the WTO?

WTO spokesman Keith Rockwell told RFE/RL this is unlikely. Speaking by telephone from WTO headquarters in Geneva, he said many current WTO members are also members of regional economic groups.

"There is very little members can agree on [concerning] how to classify, characterize and define elements of these [regional economic] agreements. So, from a sort of a legal standpoint, there is no problem with a country belonging to [both] the WTO and a regional trade agreement," Rockwell said.

Rockwell pointed to the European Union and the North American Free Trade Agreement -- linking the United States, Mexico and Canada -- as two examples of regional groups that do not interfere with members' obligations to the WTO.

Rockwell conceded a country's membership in a regional group can complicate its entry into the WTO -- but much depends on the nature of the group.

"The problem with a lot of these regional trade agreements is that they are not always strictly 'trade' relationships. They may encompass things like investment or certain elements of competition or government procurement or things like that that go beyond the scope of the WTO. It can be a complicating factor," Rockwell said.

It's not known at this point what the Single Economic Space will eventually entail. The first step foresees creation of a common customs union and free-trade zone -- but more ambitious plans foresee the eventual coordination of economic and tax policies and possibly also the use of a common currency.

Rockwell said membership in regional economic groups, under certain circumstances, can even help a country join bigger groups like the WTO.

"I think in some respects [joining a regional economic group] can enhance the ability of a government to accede [to the WTO] because [the countries] have some practice already in negotiating trade liberalization, in terms of harmonizing things," Rockwell said.

Rockwell cautioned, however, that regional economic groups and free-trade zones -- no matter how necessary or successful -- are no substitute for global, multilateral trade agreements.

If earlier efforts to promote regional economic cooperation in the former Soviet Union are any guide, a robust Single Economic Space is unlikely ever to come to fruition.

Artem Arkhipov is an analyst at Moscow's Renaissance Capital Investment Group.

"Bearing in mind recent examples from the [Commonwealth of Independent States], we have experience of countries that formally approve and agree to join these kinds of unions. In the long term, however, they are not in any hurry to fulfill and implement the agreements in practice," Arkhipov said.

(RFE/RL's Belarusian, Ukrainian and Russian services contributed to this report.)